“The downside has picked up steam and rallies are scarcer and scarcer,” he said. “Spain is the main focus — everything else is secondary. The ECB seems to have too many balls in the air. If the euro goes through 1.20, there’s not much stopping it on the downside.”

The possibility that Spain may have to seek a full bailout rather than a bailout of its banking system has sent tremors through European markets this week and pushed Spanish 10 year bond yields above the alarming 7.5 percent level (related:the world's biggest debtor nations).

Tuesday’s flash euro zone PMI data suggested that the recession will continue, adding to the gloom around the region.

“The markets sense that we are not going to have one of those quiet summers where politicians go away and we can sort of forget about it, certainly what we are seeing in Spain is reaching a critical level,” Simon Smith, chief economist at FXPro, told CNBC’s “Squawk Box Europe” Wednesday.

Euro Weakens, Spain Eyed

"We have seen the euro weaken and that is not surprising because the markets sense that we are not going to have one of those quiet summers where politicians go away and we can sort of forget about it, certainly what we are seeing in Spain is reaching a critical level," Simon Smith, chief economist at FxPro, told CNBC.

The currency’s lowest ever point against the dollar came in October 2000, when it hit 82 cents – although this was before the single currency’s coins and notes were minted. It is currently skirting the 1.20 level, not far from the recent June 2010 low of $1.1875.